In the world of gas stocks, you'll find plenty of companies of all shapes and sizes. But you'd probably have to search this corner of the energy industry pretty hard to find companies in this sector more different than Tellurian (TELL 0.41%) and Suburban Propane Partners (SPH 4.31%).
Even though they're very different companies, they're worth comparing. Let's see which of these gas companies looks like a better bet for investors.
A reliable model
Suburban Propane Partners has been around since 1945 and is, essentially, a delivery service. The company distributes propane to residential and commercial customers to use for heating. Since it's not involved in drilling for the natural gas liquids or refining propane out of them, it's not usually affected by swings in commodity prices. The business model is fairly straightforward and time-tested: Suburban buys propane from a refiner, then turns around and sells it to customers and pockets the difference.
On the other hand, Tellurian is trying to break into a very new market: liquefied natural gas (LNG) exportation. With the natural gas boom in the U.S. still going strong, many companies are betting that liquefying that gas and exporting it to overseas markets will be a lucrative investment. It's an immature market, but a promising one.
Tellurian isn't just investing in a new market; it's also planning to try out a new business model. While most companies making investments in LNG exportation are midstream companies that just transport, store, and export the LNG, Tellurian plans to do its own gas production as well. That would give it unprecedented control over the process...and unprecedented risk if things don't go as planned.
All other things being equal, a tried-and-true business model is better than a risky new one.
Winner: Suburban Propane Partners
Down the road
Because Tellurian is still a start-up, it's working on securing investment for its plans. Then it needs to actually build the necessary facilities and infrastructure, and eventually get them up and running. Even in the most optimistic scenario, that won't happen until 2023. This makes it tough to evaluate how much the company might eventually be worth to investors, since that's a lot of time for things to change or go awry.
However, Suburban Propane has a different problem. The company has seen revenue and net income decline over the last 10 years:
SPH Revenue (TTM) data by YCharts. TTM = trailing 12 months.
Other master limited partnerships (MLPs) that handle propane delivery have also encountered problems in recent years. AmeriGas Partners suffered similar financial problems and was eventually acquired by utility UGI. Ferrellgas Partners has run into serious financial trouble and may soon go under.
Although Tellurian's long-term outlook is hazy and it doesn't have a track record, that's still better than an industry where both the track record and trends are pretty dismal.
In the near term
Tellurian is generating a small amount of revenue from some gas fields it owns, but comparing current financial metrics doesn't really make much sense here, since the whole thesis for buying Tellurian is that an investment won't really start paying off until at least 2023. So let's look at the companies' near-term prospects.
For Tellurian, that means examining whether it looks like it can secure the financing it needs to build its massive Driftwood pipeline and terminal project. Recently, the company took a big step toward its goal when it announced that Indian company Petronet had agreed to purchase 5 million metric tons of Driftwood LNG per year from Tellurian. That is five times the amount that French energy giant Total -- formerly Driftwood's biggest investor -- had agreed to buy. Tellurian still has a long way to go to get its facility funded, but these high-profile investments will likely beget further interest and commitments from other companies.
For Suburban Propane, the news isn't so great. In the most recent quarter, Q3 of 2019, which covered April-June, the company sold less propane than in the prior year. According to CFO Michael Kuglin on the earnings call, "average temperatures for the month of April 2019 were 17% warmer than normal and 33% warmer than April 2018." Unfortunately for Suburban, it looks like that trend may continue. The National Oceanic and Atmospheric Administration is calling for a mild winter this year, which isn't good for a company that deals in heating fuel.
Even in the near term, the trends seem to be favoring Tellurian.
And the winner is...
While risk-averse investors should avoid the speculative Tellurian, its prospects look better than the flailing Suburban Propane, especially with the ongoing trend of warmer winters looking set to continue for the foreseeable future. Tellurian has better prospects for long-term growth.
That said, Tellurian is a risky stock, and building a massive infrastructure project is likely to bring unexpected delays and headaches for investors. Only those who can handle the risk should be investing in Tellurian now. But those who do may find a handsome payoff awaits five years down the road.